Scavenging for Bargains

Monthly Archives: June 2017

Yesterday at the end of the evening the story broke that the family controlling Sapec want to take the company private at €60/share after the payment of the €150 special dividend. This is great news, because I would have happily sold my shares for a lot less after receiving the dividend. Sapec has a book value per share of €41.60, and as you can see here I was doing my math with €30/share valuation for the stub. The book value doesn’t ascribe any value to the €36 million Sapec has provided for the Novo Bank guarantee. While the market has been skeptical about a recovery of this it could be worth up to €27/share, so the offer price of €60/share seems pretty fair. I think there is a very low risk that this deal will fall through. After the special dividend the family obviously has the liquidity to buy out minority shareholders, the fund that controls 15% of the outstanding shares has agreed to tender at €60/share and the family already controls 55% of the outstanding shares.

The timing of the announcement is a little bit unfortunate for me. The stock is scheduled to trade ex-dividend tomorrow with the payable date being Friday at the end of the week, and I thought it would be a good idea to substantially increase my position. With the majority of the cash coming back super fast the internal rate of return is pretty good, even when it would take five or six years to utilize the tax deductible this trade would generate. Yesterday the stock was halted, and today the price is of course up significantly. Luckily the math still works for me, and while it hurts to buy the stock so much higher I did execute the plan and increased my position from 5% to almost 50%!

It’s a big bet, but in my mind not as big as it sounds. I see it more as a roughly 15% position in the stub and a 5% position in a Belgium tax receivable while the Dutch tax credits provide lots of almost free upside. After the special dividend I think the stub should trade close to €60/share so I would be able to close out that part of the trade fast as well, and if it doesn’t it will probably be an attractive merger arb play.